Question

Sheddon Industries produces two products. The products' identified costs are as follows: Product A Product B Direct materials $ 24,000 $ 19,000 Direct labor 12,000 28,000 The company's overhead costs of $58,000 are allocated based on direct labor cost. Assume 8,000 units of product A and 9,000 units of Product B are produced. What is the cost per unit for product B

Answer 1

Answer:

Cost per unit of Product B is $9.7295

Explanation:

To calculate the cost per unit of a product, we need to convert all the total costs into per unit costs. We also need to find out the Overhead Absorption Rate (OAR) for company's overheads and distribute them among products based on the direct labor costs used by each unit of a product.

Total direct labor cost = 12000 + 28000 = 40000

OAR- Factory Overheads = $58000 / $40000 = $1.45 per $1 of direct labor cost

For Product B

Direct material cost per unit = $19000 / 9000 units = 2.11 per unit

Direct labor cost per unit = $28000 / 9000 units =3.11 per unit

Overhead cost per unit = 1.45 * 3.11 =  4.5095 per unit

$1.45 of overhead is applied to a product for every $1 of direct labor cost incurred.

Total cost per unit of Product B = 2.11 + 3.11 + 4.4095  =  $9.7295